Income Tax Notes

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Basic Concepts
I. What is Tax?
Taxes are levied by government to

meet the common welfare expenditure
of the society.
It includes two types:
Basis Direct Tax Indirect Tax
Meaning If the tax is levied on the If the tax is levied on the

income or wealth of a person, price of goods and
then, it is direct tax. services, then, it is an
indirect tax.
Burden The burden of the direct tax The burden of the indirect
cannot be shifted. tax is shifted from person
to persons.
Tax Difficult Relatively easier.

collection
For example Income Tax Goods and services tax

[GST] or custom duty
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Scope of Income tax:

1. Income tax levied on all sources of income including wages,
salaries, business profits, capital gains and dividends.
2. It is usually applicable to resident of a particular country or

jurisdiction. Non-resident may be subject to income tax on their
income earned within country.
3. Income tax may be levied at different rates for different types of

income, such as higher rates for capital gains compared to
wages.
4. Income tax may be collected by federal government, state or

local govt.
5. Income tax laws may include provisions for tax deductions,

exemptions and credits to encourage certain types of behavior or
to provide relief to certain taxpayers.
6. Income tax may be enforced through self-assessment, where tax-

payers are responsible for calculating and paying their own
taxes, through audits and other enforcement measures by the
tax authority.
Nature of Income Tax
• Income tax typically imposed at progressive rates, which means that

the tax rate increases as the amount of income increases.
• Income tax usually allow for exemptions and deductions for certain
types of income or expenses.
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• Tax credits are reductions in amount of tax that is owed. They can be
based on various factors, such as number of dependents a taxpayer
has, or their involvement in charitable activities.
• Most tax payers are required to file a tax return each year to report
their income and calculate their tax liability.
• Many taxpayers have tax withheld from their paychecks by their

employers. This withholding is used to pay the taxpayer’s estimated
tax liability.
• Some taxpayers are required to self-assess their tax-liability and

make payments directly to the tax-authority. This may be the case of
self-employed individuals or those with income from other sources.
Levy of Income Tax:

Under Section 4, Income Tax is levied on total income of the previous year of
every person.
Important Definitions:
(1) Assessee [SECTION 2(7)]
“Assessee” means a person by whom any tax or any other sum of money is
payable under this Act. In Addition, it includes:
❖ Every person in respect of whom any proceeding under this Act has
been taken for the assessment of his income, the income of any other
person in respect of which he is assessable; or the loss sustained by
him or by such other person.
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❖ Every person who is deemed to be an assessee under any provision of

this Act;
❖ Every person who is deemed to be an assessee in default under any
provision of this Act.
(2) Assessment [SECTION 2(8)]

This is the procedure by which an income of an assessee is determined.
Assessment procedure will be dealt with in detail at final level.
(3) Person [SECTION 2(31)]

There are mainly seven categories of persons described under this section.
→ Individual: It means only natural person, i.e. a human being,

both male and female. It also includes minor or person of
unsound mind.
→ HUF: It is not defined by Income-Tax Act. But according to

Hindu Law as family, all males lineally descended from common
ancestors and includes their wives and daughters. Members of
HUF are called co-parceners. Under HUF, member with four
degrees including the head of family (Karta) are called Co-
Parceners. Under Income-Tax Act, 1961, Jain undivided families
and Sikh undivided families would also be assessed as a HUF.
→ Company [sec 2(17)]: Under this Act, the expression “Company”

means:
(i) Any Indian Company as defined in section 2(26); or
(ii) Any-body corporate by or under the laws of country outside
India.
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(iii) Any institute, association which is assessable or was assessed

as company for any AY under Income-Tax Act.
(iv) Any institution, association, whether incorporated or not
and whether Indian or Non-Indian, which is declared by any
general or specific order by CBDT.
→ Association of Persons (AOP): When persons combine

together for promotion of Joint enterprise they are assessable as
an AOP, if they do not in law constitute a partnership.
→ Body of individuals (BOI): It denotes the status of persons like

executors or trustees who merely receive the income jointly and
who may assessable in same extent as the beneficiaries
individually. Section 2(31) further explains that AOP/BOI shall
be treated as person weather or not it was formed with object of
deriving income, profits or gains.
→ Local Authority: The term local authority is taxable in respect

of that part of its income which arises from any business carried
on by it so far as that income does not arise from the supply of
commodity within its jurisdictional area. However, supply of
water and electricity even outside the local authority area is
exempt from tax.
→ Artificial Juridical Persons: These are not natural persons but

are separate entities in eyes of law. Deities, Bar council,
universities are some important examples of Artificial Juridical
persons.
(3) Income [SECTION 2(24)]

Section 2(24) of the Act gives a statutory definition of income. At present,
the following items and receipts are specifically included in income: ----
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Allowance Any capital FMV of

Profits and
meet personal gain u/s 45 inventory as
Gains &
dividend expenses CA U/S 28(IVA)
Consideration
Deemed Any winning
Value of rec for issue of
profits u/s 41 from lottery,
perquisite shares u/s
or 59 other income
56(2)(viiib)
Any special P AND G of Compens. rec

Sum received termination of
allowance business u/s 28
to PF. his
employment
Previous Year [PY] and Assessment Year [AY]

Assessment Year [AY] means a period of 12 months commencing on 1st
April every year in which income earned in PY is assessed to tax.
[Section 2(9)]
Previous year [PY] means a period of 12 months commencing on 1st
April every year in which income is earned. [section 3]
NOTE: - IF BUSINESS OR PROFESSION NEWLY SET UP DURING FY
THEN PY SHALL BE THE PERIOD BEGNINNING ON DATE OF SETTING
UP OF BUSINESS AND ENDING 31ST MARCH OF SAID FY.
For example [2]:
- Determine the PY for AY 2021-22, if A Chartered Accountant sets

up his profession on 1st July, 2020.
Answer: - The PY will be 1st July, 2020 to 31st March 2021.
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GENERAL RULE: “Income of a PY is assessed in the AY following the PY”.

There are certain exceptions to this rule:
Section 172: Shipping Business of Non-Resident
Ship of NR allowed to leave the port only where the tax has been paid or
satisfactory arrangements has been made to payment thereof.
- 7.5% of the freight paid of payable to the owner weather in India
or outside India on account of such carriage is deemed to be his
income in Same PY.
Section 174: Persons leaving India

If it appears to an AO that any individual may leave India during the current
AY or shortly after its expiry and he has no intention to returning to India,
Total income from expiry of last PY up to probable date of his departure
from India is taxable in that AY.
Section 174 A: AOP/BOI formed for a particular event
If AO think that AOP/BOI is likely to be dissolved in same year or in next
year, he will be assessed income up to date of dissolution in the relevant PY
itself.
Section 175: Persons likely to transfer property to avoid tax
Total income of the such person for period from the expiry of previous year
to the date, when the AO commences proceedings under this section is
chargeable to tax in that AY.
Section 176: Discontinued Business
Income of the period from expiry of PY up to the date of such
discontinuance may, at the discretion of AO may be charged to tax in that
PY itself.
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RATES OF TAX
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Illustration 1: Mr. Amit has a total income of Rs. 9,00,000 for PY 2020-
21, compromising of income from house property and interest on fixed
deposits. Compute tax liability for AY 2021-22 assuming the age
(i) 81 years
(ii) 63 years
(iii) 42 years
Assuming that Mr. Amit has not opted for provision of section 115BAC
SOLUTION:
(i) Computation of tax liability of Mr. Amit (age 81 years)
First Rs. 5,00,000 - Nil
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Balance i.e. 9,00,000 minus Rs. 5,00,000 20% of 4,00,000 = Rs. 80000
Add: Health and Education Cess @4% = Rs. 3200
= Rs. 83200

Next 2,00,000 5% of 2,00,000 = 10,000
Balance i.e. 9,00,000 minus Rs. 5,00,000 20% of 4,00,000 = Rs. 80000
= Rs. 93600

Next Rs. 2,50,001 to Rs. 5,00,000 5% of 250000 = Rs. 12500
Balance i.e. 900000 minus 5,00,000 20% of Rs. 4,00,000 = Rs.
80000
Rs. 92500
= Rs. 96200
Note: As per section 115BAC, individual and HUFs have an option to pay tax
in respect of their total income (other than income chargeable to tax at
special rates under chapter XII) at following concessional rates, if they do
not avail certain exemptions/ deductions like leave travel concession,
standard deductions under head ‘Salary’, interest on housing loan on self-
occupied property, deductions under Chapter VI-A (Other than 80CCD (2)
or section 80JJAA) etc. ------
Up to Rs. 2,50,000 Nil
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From Rs. 2,50,001 to Rs. 5,00,000 5%

From Rs. 5,00,001 to Rs. 7,50,000 10%
From Rs. 7,50,001 to Rs. 10,00,000 15%
From Rs. 10,00,001 to Rs. 12,50,000 20%
From Rs. 12,50,001 to Rs. 15,00,000 25%
Above Rs. 15,00,000 30%
(2) Firm/LLP
On the whole of the total income 30%
(3) Local authority
On the whole of the total income 30%
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Residence and Scope of Total Income

Section 6 - The incidence of tax on any assessee depends upon his
residential status under this act.
Provisions:
• Residential status of individuals:

On the basis of number of days stay in India: Under section 6(1),
an individual is said to be resident in India in any Previous year, if
he satisfies any one of the following the conditions:
(i) He has been in India during the PY for total period of

182days or more or;
(ii) He has been in India during the 4 years immediately

preceding the previous year for the total period of 365 days or
more and has been in India for at least 60days in the relevant
PY.
Exceptions:
1. Indian citizen, who leaves India during relevant previous year as a

member of crew of an Indian ship or for the purpose of employment
outside the India
2. Indian citizen or the person of Indian origin who, being outside the
India comes on visit to India during the relevant PY.
The above categories of individuals will be treated as resident in

India, only if their stay during the relevant PY amounts to 182 days or
more.
However, such person having total income, other than income from
foreign sources, exceeding 15 lakhs during the relevant PY will be
treated as resident, if
a. the period of stay during relevant PY is 182 days or more
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b. he has been in India, during the 4 years immediately preceding

the PY for the total period of 365days or more and he has been in
India for at least 120 days in PY.
Resident and Ordinarily Resident OR Resident but Not Ordinarily

Resident
[In short Who is NOR?]
NOR is one who satisfies any one of following conditions specifies u/s 6(6)
(i) If such individual has been NR in India in any 9 out of 10 PY proceeding

the relevant PY or;
(ii) If such individual has during the 7 PYs preceding the relevant PY been
in India for the period of 729 days or less or;
• Residential status of HUF:
❖ Resident: If the control and management of its affairs is situated

wholly or partly in India.
❖ Non-Resident: If the Control and management of its affairs is
situated wholly or partly outside the India.
If the Karta of the Resident HUF satisfies both the following conditions then
he is ROR Otherwise NOR.
(i) He should be the resident in at least 2 PY out of the last 10 PYs

immediately preceding the relevant PY.
(ii) Stay of Karta during 7 PYs immediately preceding the relevant

PY, should be 730days or more.
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• Residential status of Firms, AOP and BOIs:
❖ Resident: If the control and management of its affairs is situated

wholly or partly in India.
❖ Non-Resident: If the Control and management of its affairs is
situated wholly or partly outside the India.
• Residential status of Companies: Resident if
(i) If Company is an Indian Company;
(ii) If its POEM is in India.
ILLUSTRATION 1: Mr. Dhruv a person of Indian Origin and a citizen of

country X, got married to Ms. Deepika, an Indian citizen, residing in
country X on 4th Feb 2021 and came to India for first time on 20-2-2021.
He left for country X on 12th August 2021. He returned to India again on
20-01-2022 with his wife to spend some time with his parents-in-law for
30days and thereafter returned to country X on 18.08.2022.
He received the following gifts from his relatives and friends of her
wife during 01-04-2021 to 31-03-22 in India:
From parents of wife Rs. 101000
From married sister of wife Rs. 11000
From very close friend of wife Rs. 282000
(a) Determine the Residential status of Mr. Dhruv for AY 2022-23.
Solution:
Under section 6(1), Indian citizen or the person of Indian origin who, being
outside the India comes on visit to India during the relevant PY, will be
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treated as resident in India, only if their stay during the relevant PY

amounts to 182 days or more.
However, such person having total income, other than income from foreign
sources, exceeding 15 lakhs during the relevant PY will be treated as resident,
if
(a) the period of stay during relevant PY is 182 days or more;
(b) he has been in India, during the 4 years immediately preceding the
PY for the total period of 365days or more and he has been in India for at
least 120 days in PY.
Since in the present case, total income other than foreign sources, of Mr.
Dhruv, a person of Indian origin does not exceed Rs. 15,00,000, he would
said to be resident of India, only if he stayed in India for 182days or more
during the PY 2021-22 relevant to AY 22-23.
His stay in India during PY 2021-22 is as under:
01.04.21 – 12.08.20 = 134days
20.01.2022 – 18.02.2022 = 30 days
Total = 164 days
Since Mr. Dhruv has stayed in during the PY for less than
182days, he is said to be Non-resident.
SCOPE OF TOTAL INCOME [Section 5]

Under section 5(1) total income of:
Scope of Total Income ROR RNOR NR
Income received or YES YES YES

deemed to be received
in India during PY
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Income accrue or arise YES YES YES

or deeming to accrued
or arise in India during
PY
Income accrue or arise YES, even if such YES, but only if NO

outside India during PY income is not such income
received or derived from
brought in India business
during the PY. controlled in or
profession set up
in India during
PY.
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Salaries
• Every payment made by an employer to his employee for services
rendered would be taxable as salaries.
Basis of Charge: (Section 15)

(i) Salary is chargeable to tax either on “due basis” or on “receipt basis”,
whichever is earlier.
Example 1:
If Sachin withdrew his salary in advance for the month of April 2022 in the
month of March 2022 itself, then the same will be chargeable to tax on
receipt basis and is assessed as income of the PY 2021-22 i.e. AY 2022-23.
However, the salary for the AY 2023-24 will not include that of April 2022.
Example 2:
If the salary due for the March 2022 is received by Sachin in the Month of
April 2022, then it is still chargeable as income of the PY 2021-22 i.e. AY 2022-
23. Obviously, salary for the AY 2023-24 will not include that of March 2022
salary which is received in April 2022.
SALARY, PERQUISITE AND PROFIT IN LIEU OF

SALARY: (Section 17)
Meaning of Salary (Section 17(1))

As per section 17(1), salary is an inclusive definition and includes both
monetary as well as non-monetary items. It includes:
❖ Wages
❖ An annuity or pension
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❖ Any gratuity
❖ Any fees, commission, perquisites or profit in lieu of or in addition to
any salary or wages.
❖ Any advance of salary,
❖ Any payment received in respect of any period of leave not availed by
him i.e. leave encashment or leave salary.
Allowances
Allowances are of various types: - Fully taxable, Partial taxable and Fully
exempt.
1. FULLY TAXABLE ALLOWANCES: - SWIFT-DPOT (To learn it easily)
❖ S – Servant Allowance
❖ W- Warden Allowance
❖ I – Interim Allowance
❖ F = Fixed Medical Allowances
❖ T – Tiffin Allowances
❖ D – Dearness Allowances/City Compensatory Allowance
❖ P – Project Allowances
❖ O – Overtime Allowances’
❖ T – Transport Allowances
2. PARTIAL TAXABLE ALLOWANCES-
➢ Special Allowances u/s 10(14)

➢ HRA u/s 10(13A)
HRA is the allowance given by employers to his employees towards the

payment of rent for residence of the employee. It is exempt to extent
of lease of following:
Metro Cities (i.e. Delhi, Kolkata, Other Cities

Chennai, Mumbai)
(i) HRA actually received (i) HRA actually received
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(ii) Rent paid – 10% of salary of (ii) Rent paid – 10% of salary of
relevant period. relevant period.
(iii) 50% of salary for the relevant (iii) 40% of salary for the relevant
period. period.
(1) Exemption is not available to assessee who lives in his own house or in a
house for which he has not paid expenditure of rent.
(ii) Salary = Basic salary + DA (If provided in terms of employment for

purpose of retirement) + commission (as fixed % of turnover)
Special Allowances u/s10(14) AS PER RULE 2BB
• U/s 10(14) (i):

For the allowances under this category, there is no limit on the
amount which the employee should receive from the employer,
but whatever amount is received should be fully utilized for the
purpose of which it was given to him.
Such allowances include: -

Assessee opts for
➢ Travelling allowances 115BAC would be
➢ Uniform Allowances entitled to get
➢ Research allowances exemption only for:
travelling, daily and
➢ Conveyance allowances conveyance allowances.
➢ Daily Allowances
➢ Helper allowances
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• U/s 10(14) (ii):
Nature of Allowances Extent to which

allowance is exempt
Any special compensatory allowances in Rs. 800 or Rs. 300 per

nature for Hilly Areas/ High altitude month depending upon
allowance specified locations
Rs. 7000 p.m. in Siachen

area of Jammu and
Kashmir
Any special compensatory allowances in Rs. 1300 or Rs. 1100, or Rs.

nature of border area allowances or remote 1050 or Rs. 750 or Rs. 300
locality allowance or difficult areas allowances or Rs. 200 p.m. depending
or distributed areas allowances upon the specified
locations
Tribal areas/ Schedule areas/ agency areas Rs. 200 per month
allowances
Any allowances granted to an employee 70% of such allowance up

working in any transport system to meet his to maximum of Rs. 10000
personal expenditure during his duty per month
performed in course of running such transport
from one place to another, provided that such
employee is not in receipt of daily allowances
Children education allowance Rs. 100 per child up to

max 2 children
Hostel expenditure of child education Rs. 300 per child up to

max of 2 children.
Compensatory field area allowance (Specified Rs. 2600 per month

areas in specified states)
Compensatory modified field areas allowances Rs. 1000 per month

(specified areas in specified states)
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Counter insurgency allowance granted to Rs. 3900 per month

members of armed forces operating in areas
away from their permanent locations
Any transport allowance granted to the person Rs. 3200 per month
who is handicapped or blind or deaf
Underground allowance Rs. 800 per month
High altitude allowances Rs. 1060 per month
From altitude of 9000 feet to 15000 feet Rs. 1600 per month
From above 15000 feet
Special compensatory highly active field area Rs. 4200 per month
allowances
Island allowance Rs. 3250 per month
3. FULLY EXEMPT ALLOWANCES-
➢ Allowances to Supreme court/ High Court Judges.

➢ Allowances received from UNO
➢ Allowances paid outside India (u/s 10(7)]
➢ Sumptuary Allowance
➢ Compensatory allowance under Article 222(2) of the constitution.
Gratuity [Section 10(10)]

It is the voluntary payment made by employer in appreciation of services
rendered by an employee.
Its treatment of tax as under:
(1) Received during services: Fully Taxable
(2) Received at the time of death/retirement:
➢ Govt employee/Civil servant – Fully exempt u/s 10(10)(i)

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➢ For other employees: -

❖ In case of employee covered under Payment of Gratuity Act, 1972
o Least of following u/s 10(10)(ii)
(i) Rs. 20 Lakhs
(ii) Actual Gratuity received
(iii) 15 days salary (based on last salary drawn) for
every completed year of services.
Number of days taken in a month = 26 days.
Salary = Basic salary + DA (Provided in terms of employment for

retirement purpose) + commission, as fixed % of turnover.
❖ In case of employee not covered under Payment of Gratuity Act,

1972
(i) Rs. 20 Lakhs
(iii) half month salary (based on last 10 months’
salary) for every competed year of services.
Pension [SECTION 10(10A)]

It defines as periodic payment made especially by Government or
Company or other employers to the employee in consideration of past
service payable after his retirement.
Pension is of two types:
❖ Uncommuted
❖ Commuted
Taxability:
1. Uncommuted pension (during employment periodically)
Fully Taxable
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2. Commuted Pension (Lumpsum at time of retirement)
❖ In case of Govt employee:

o Fully exempt u/s 10(10A) (i)
❖ In case of other employees: u/s 10(10A) (ii)

o If received gratuity:
(a) 1/3 * (commuted pension received/ Commutation %)
o If gratuity not received:
(b) 1/2 * (commuted pension received/ Commutation %)
Leave Salary/Leave Encashment [SECTION 10(10AA)]

The provisions for this clause are mentioned below:
(a) Government employees: - Fully Exempt u/s 10(10AA) (i)
(b) Any other employees:
(i) Rs. 300000
(ii) Leave salary actually received.
(iii) 10months salary (basis of average salary of last 10 months

preceding retirement)
(iv) cash equivalent to un availed leave (based on last 10 months

average salary) to his credit the time of retirement.
Earned leaves cannot be exceed to more than 30 days every year of

actual services.
Example:
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Mr. AK Verma is working as a manager at Rs. 25000 p.m. with M/S

Hindustan Photo Jammu. He is receiving Rs. 4800 p.m. as DA and Rs.
6000 p.m. as HRA. He stays in his own house. He received Rs. 14000 as
travelling allowance and he could spend only Rs. 12500. His salary
accrues on last day of every month.
He retired from service with effect from feb 1, 2022 and received the
following amounts:
(i) Retirement Gratuity Rs. 462000 (He retired after rendering 34 years
services and hissalary during 2020-21 was Rs. 25000 p.m. (Not covered
under Gratuity Act, 1972)
(ii) His pension was fixed Rs. 12000 p.m. He gets 3/4th of his pension
commuted for a lump sum of Rs. 510000.
(iii) Leave encashment of Rs. 125000 being 5 month’s salary received

om 31-01-2022.
Compute his Gross Salary income for the PY 22-23
Computation of Gross Salary income of Rs. Rs

Shri AK Verma
Salary @25000 p.m. for 11 months 275000
DA @ 4800 p.m. for 11 months 52800
HRA Rs. 6000 p.m. for 11 months
(Fully taxable as live his own house) Rs. 66000
Travelling Allowance Rs. 14000
(Less) Actual Expenditure (12500) 1500
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Gratuity received Rs. 462400
Less: Exempted u/s 10(10) - [see note 1] (425000) Rs. 37400
Uncommuted pension (fully taxable)
1/4 * Rs. 12000 for 1 month Rs. 3000
Commuted value of pension Rs. 510000
(-) Exempted u/s 10 (10A) [See note 2] (Rs. 226667) Rs. 283333
Leave encashment Rs. 125000
(-) Exempted u/s 10(10AA) [See note 3] (Rs. 125000) Nil
Gross salary Rs. 716033
Note 1: In case of employee not covered under Payment of Gratuity Act, 1972

(i) Rs. 20 Lakhs
(iii) half month salary (based on last 10 months salary)
for every competed year of services.
(1) Notified limit Rs. 20,00,000
(2) Actual gratuity received Rs. 462400
(3) Half month’s average salary for completed year of

services (based on last 10 months)
Average salary = Rs. 25000 * 10/10 = Rs. 25000 p.m.

Rs. 425000
25000 * ½ * 34
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Least of the above exempt u/s 10 (10)(ii) Rs. 425000
Note 2:
Commuted Pension (Lumpsum at time of retirement:
❖ In case of other employees: u/s 10(10A) (ii)

o If received gratuity:
(a) 1/3 * (commuted pension received/ Commutation %)
o If gratuity not received:
(b) 1/2 * (commuted pension received/ Commutation %)
In case of commuted pension (if gratuity received)
For 3/4th of pension commuted value is = Rs. 510000
Full value of commuted pension is = RS. 510000 * 4/3 = Rs. 6,80,000
1/3 * Rs. 510000 * 4/3 = Rs. 226667
Note 3:
(i) Actual amount received = Rs. 125000
(ii) Notified limit = Rs. 300000
(iii) 10 months’ salary (25000 * 10) = Rs. 250000
(iv) Cash equivalent to leave due (Rs. 25000 * 5) = Rs. 125000
Least of the above is exempted u/s 10(10AA) = Rs. 125000
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Types of Provident fund and its taxability:
Particulars RPF URPF Statutory PF PPF

(SPF)
Employer’s Contribution Not taxable Fully exempt Not available

contribution in excess of at the time of as its
12% of salary contribution. assessee ‘s
is taxable as only own
“salary” u/s contribution.
17(1)
employee’s Eligible for Not eligible Eligible for Eligible for

contribution deductions for deductions deduction
u/s 80c. deductions. u/s 80c. u/s 80c.
Interest Amount in Not taxable Fully exempt NA

Credited on excess of at the time of
employer’s 9.5% p.a. is credit of
contribution taxable as interest
“salary” u/s
17(1)
Interest Amount in Not taxable Exempt up to Fully exempt

credited on excess of at the time of certain limit
employee’s 9.5% p.a. is credit of of
contribution taxable as interest contribution
“salary” u/s
17(1)
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PERQUISITES [SECTION 17(2)]

[A] Valuation of residential accommodation: (sub-rule 1 OF Rule 3)
In case of unfurnished accommodation:
S. No. Circumstances Valuation
1. When accommodation is License fees determined by

provided by central/state government in respect of
government to employees accommodation in respect of rules
framed by such government as
reduced by
• the rent actually paid by

employee
2. Where the
accommodation is
provided by any other
employer
(a) If it is owned by City having population:

employer
• Upto 10Lakhs = 7.5% of salary
• Between 10Lakhs to 25Lakhs =
10% of salary
• More than 25 Lakhs = 15% of
Salary
(b) If taken on rent/lease • 15% of salary

by employer: • Actual salary paid by employer
Whichever is lower.
In case of furnished accommodation:
Value of unfurnished accommodation + 10% p.a. of cost of furniture (if

owned by employer)
29
Note (9)
(i) If furniture is hired from other/third party then, then actual rent/ hire
charges paid by employer is taxable as perquisites value.
Meaning of Salary:
Salary = Basic pay + allowances + bonus + commission payable

monthly or otherwise + any monetary payment from one or more
employers.
[B] Valuation of Motor Car:
1. Motor car owned by employee, maintenance, running expenses and

driver expenses met by employee:
Taxable value is Nil.
2. Motor car owned by employee, maintenance, running expenses and

driver expenses met by employer:
Purpose Taxable perquisites value
Office Purpose Nil
Private purpose Actual expenses by employer – amount paid by

employee.
Both Purpose Amount incurred by employer = XXX
(-) Rs. 1800pm =<1.6 litre/ Rs. 2400pm > 1.6 litre
= (XX)
(-) Rs. 900pm if driver provided = (XX)
(-) Amount paid by employee = (XX)
Taxable value of perquisites = XXX
30
3. Motor car owned by employer, maintenance, running expenses and

driver expenses met by employee:
Office Purpose Nil
Private purpose 10% on Actual cost – Amount already paid by

employee.
(-) Rs. 600 =<1.6 litre/ Rs. 900 > 1.6 litre = (XX)
(-) Rs. 900 if driver provided = (XX)
4. Motor car owned by employer, maintenance, running expenses and

driver expenses met by employer:
Office Purpose Nil
Private purpose Actual expenses by employer – Dep 10% on

Actual cost – Amount already paid by
employee.
(-) Rs. 1800 =<1.6 litre/ Rs. 2400 > 1.6 litre = (XX)
(-) Rs. 900 if driver provided = (XX)
31
[C] Valuation of benefit of provision of domestic servants: (sub-rule 3

OF Rule 3)
Actual cost = Total amount of salary paid by employer – amount already

paid by employee for such services.
[D] Valuation of Gas, electricity or water supplied by employer: equal

to cost.
[E] Valuation of free and concessional educational facilities
[F] Valuation of Free or concessional tickets
Value of perk = amount of such benefit is offered by such employer to the

public – any amount recovered from the employee for such benefit.
Some others are:
❖ Interest-free or concessional loan [sub-rule 7(i) of rule 3]

(a) The value shall be determined as the sum equal to interest
computed at the rate charged per annum by SBI as on 1st day of
relevant PY in respect of loans for the same purpose advanced by it
on the maximum outstanding monthly balance as reduced by the
interest if any, actually paid by him or any such member of his
household.
Note (12)
“Maximum outstanding monthly balance” means the aggregate

outstanding balance for each loan as on the last day of each month.
32
(b) However, no value would be charged, if such loans are made

available for medical treatment in respect of prescribed diseases (like
cancer, tuberculosis etc.) or where the amount of loan not
exceeding in aggregate of Rs. 20000.
❖ Free or concessional food non-alcoholic beverages [sub-rule

7(iii) of rule 3]
Nature of Expenditure Taxability

Not a perquisite
Tea & snacks provided during
working hours
Cost of employer [In excess of
Meal provided in office Rs. 50 per meal]
Not a perquisite if provided in

Food and Non- alcoholic working hours.
beverages provided in remote
Area or off shore installation
areas.
❖ Value of gift, voucher or token in lieu of such gift [sub-rule

7(iv) of rule 3]
Value of perks = sum equal to the amount of such gift.
However, if the value of such gift, voucher or token, as the case may be, is
below Rs. 5000 in the aggregate during the PY, the value of perquisite shall
be taken as “Nil”
❖ Value of Credit card expenses [sub-rule 7(v) of rule 3]
Total expenses including membership and annual fees incurred by

employer – expenses incurred for official purpose – amount received
from employee for such benefit.
33
❖ Value of Club expenditure [sub-rule 7(vi) of rule 3]
Same as (sub rule 7(v) of rule 3)
❖ Value of use of moveable assets [sub-rule 7(vii) of rule 3]
Asset Given Value of perquisites
Use of laptops and computers Nil
Other movable assets 10% p.a. of actual cost of such asset

or the amount of rent or charge paid
as the case may be.
❖ Value of Transfer of moveable assets [sub-rule 7(viii) of rule 3]
Asset Given Value of perquisites
Computers and other Depreciated value of asset [Depreciation is

electronic items computed @ 50% on WDV for each
completed year of usage.
Motor cars Depreciated value of asset [Depreciation is

computed @ 20% on WDV for each
Other movable assets Depreciated value of asset [Depreciation is

computed @ 10% on SLM for each
DEDUCTIONS FROM SALARY U/S 16.

✓ Standard Deductions [section 16(ia)]
Amount of salary or Rs. 50000 whichever is lower.
✓ Entertainment allowance [section 16(ii)] [Govt. Employer/ee]
Fully taxable i.e., first to be included in the amount of salary but
thereafter following deductions made from the amount of gross salary.
34
▪ One-fifth of Basic salary

▪ Rs. 5000
▪ Entertainment allowance received.
✓ Professional Tax (section 16(iii)]
Allowed as deduction only if actually paid by employee during the PY.
The total amount by way of Professional tax payable in respect of any
one person shall not be exceed Rs. 2500 p.a.
Steps in calculating Income from Salaries (simple overview) (V.imp)
1. Calculate basic pay or salaries

2. Add allowances (taxable/partial/exempt)
3. Add bonus or commission if any
4. Add contribution to provident fund (only taxable)
5. Add perquisites paid by employers.
6. Add retirement benefits if any
7. Add 1 to 6 steps = Gross Salary
8. Less deductions u/s 16
9. Step 7 – 8 = Net taxable salary
35

 Mind Maps
 Examples
36
INCOME FROM HOUSE PROPERTY

(i) Property should consist of any building or land appurtenant
thereto.
(ii) Assessee must be the owner of the property.
DETERMINATION OF ANNUAL VALUE [SECTION 23]
GAV – GROSS ANNUAL VALUE (note 2) XXX
LESS: (MUNCIPAL TAXES) (XX)
NAV – NET ANNUAL VALUE XXX
Note (2) Determination of GAV: (let Out – section 23(i) a/b)
STEP 1: MV or FR ---------------Whichever is higher.
Step 2: Answer of step 1 or SR ------------- Whichever is l0wer.
Step 3: Answer of step 2 (ER) or AR ---------------Whichever is higher.
MV = Municipal Value, SR = standard rent, ER = estimated rent
AR = Annual rent
Other Cases:
TYPE OF HOUSE GROSS ANNUAL VALUE

PROPERTY
Let-out property vacant for Actual rent is lower than ER. But AR is
part of the year. [Section 23 the GAV.
(c)]
37
Self-occupied or Unoccupied Annual value is Nil

Property [Section 23 (2)]
Let-out for part of year and ER or AR = Whichever is higher is GAV.

Self-occupied for part of year.
[section 23(3)]
Deemed to be let-out property Where assessee owns more than two

[Section 23(4)] properties of self-occupation, then
income of any two, at the option of
assessee computed under self-
occupied property category and its AV
is Nil. While other properties shall be
treated as “Deemed to be let-out” In
this case, ER= GAV and no adjustment
necessary in case of AR whether HP
vacant.
A portion of HP is let-out and MV, FR, SR and any property taxes if

a portion is self-occupied not given separately then shall be
apportioned between let-out and self
on reasonable basis.
Treatment for property taxes –

• Deducted only when borne by assessee or actually paid during PY.
DEDUCTIONS FROM ANNUAL VALUE [SECTION 24]
38
INTEREST ON
STANDARD BORROWED CAPITAL
DEDUCTION U/S U/S 24(B)
24(A)
• 30% OF NAV
EXCEPTIONS:
❖ In case of self-
occupied
property.
❖ In case of
property held as
stock in trade.
❖ DEDUCTION IN RESPECT TO SELF-OCCUPIED OR

UNOCCUPIED PROPERTY WHERE ANNUAL VALUE IS NIL:
allowed as deduction on account of interest (including 1/5th of the accumulated

interest of pre-construction period) as under: -
S.NO. CONDITIONS AMOUNT OF

DEDUCTION
A Loan Borrowed before 1.4.1999 Actual interest payable in

aggregate for one or two
Where the property has been self-occupied properties,
acquired, constructed, repaired, subject to maximum of Rs.
renewed or reconstructed with 30000.
borrowed capital.
B Loan Borrowed on or after Actual interest payable in

1.4.1999 aggregate for one or two
self-occupied properties,
Where the property has been subject to maximum of Rs.
acquired or constructed with capital 2,00,000 if certificate
borrowed on or after 1.4.1999 and
39
such acquisition or construction is mentioned below table is

completed within 5 years from the obtained.
end of the FY in which the capital
was borrowed.
Where the property is repaired, Actual interest payable in

renewed or reconstructed with aggregate for one or two
borrowed capital on or after 1.4.1999 self-occupied properties,
subject to maximum of Rs.
30000.
However, total interest deduction under (a) and (b) cannot exceed Rs.
200000.
✓ Unpaid purchase price would be considered as capital borrowed.
✓ Interest on unpaid interest is not deductible.
TREATMENT OF INCOME FROM CO-OWNED

PROPERTY [SECTION 26]
SELF-OCCUPIED PROPERTY LET-OUT PROPERTY
❖ Annual value is Nil. ❖ Compute only if there is one

❖ Each owner is entitled to get owner.
deduction u/s 24(b) of Rs. ❖ Thereafter the income so
30000/ Rs. 200000 as the case computed shall be
may be. apportioned amongst each co-
owner as per there share.
However, if the co-owner owns
other self-occupied or unoccupied
property, the aggregate amount
of interest from co-owned or self-
occupied property cannot exceed
40
Rs. 30000/ Rs. 200000 as the case

may be.
COMPUTATION OF INCOME FROM HOUSE

PROPERTY
Gross Annual Value (Section 23) GAV XXX
Less: Municipal Taxes (xx)
NET ANNUAL VALUE [NAV] XXX
Less: Deductions u/s 24:
1. Standard deduction u/s 24a (30% of NAV) (xx)
2. Interest from Borrowed Capital u/s 24b (xx)
INCOME FROM HOUSE PROPERTY (TAXABLE) XXX
41
PROFIT AND GAINS FROM BUSINESS

OR PROFESSION
PERFORMA FOR COMPUTATION OF INCOME U/H
PGBP
Particulars Amount Amount
Rs. Rs.
Net Profit as per statement of profit or loss A
Add: Expenses debited to statement of profit
and loss but not allowable B
A+B C
Less: Expenditure allowable as deduction but
not debited to profit and loss account D
C-D E
Less: Income credited in the statement of Profit
and loss but not taxable/taxable under any
other head F
E-F G
Add: Income Chargeable under this head/
Deemed income H
Profit and Gains from Business or profession
G-H I
ADMISSIBLE DEDUCTION [SECTION 30 TO 37]

A. RENT, RATES, TAXES, REPAIRS AND INSURANCE TO BUILDING
[SECTION 30]
B. REPAIRS & INSURANCE OF MACHINERY, PLANT AND
FURNITURE [SECTION 31]
C. DEPRECIATION [SECTION 32]
D. EXPENDITURE ON SCIENTIF RESEARCH [SECTION 35]
42
Note: The two sections will be discussed after section 36 and 37 because
it includes large topics and important topics that need to be focus
separately.
E. OTHER DEDUCTIONS [SECTION 36]
Insurance premia paid ➢ If insurance policy taken out against
[section 36(1)(i)] risk, damage, destruction of stock or
stores of the Business or Profession.
➢ Premia paid by employer for health

insurance of employee by any mode
other than mode of cash.
Bonus and Commission Provided sum paid to employees shall not

[Section 36(1)(ii)] be payable to them as profits or dividend.
Interest on borrowed Allowed in respect of capital borrowed for

capital purpose of B & P.
[section 36(1)(iii)]
Note: Deduction in respect to any
amount, paid as interest, in respect of
capital borrowed for acquisition of new
asset for any period beginning from date
on which capital was borrowed till the
date on which such asset was first put to
use shall not be allowed.
Employer contribution Towards:

[section 36(1)(iv) and (v)] ➢ RPF
➢ Pension scheme to extent of 10% of
salary.
➢ Approved gratuity fund.
Bad debts [section 36 in a manner as prescribed.

(1)(vii) and (section 36(2)]
43
Expenses on family Expense is of capital nature: 1/5th allowed as

planning by a company deduction in PY and in each four
[section 36(1) ix] immediately succeeding PYs.
F. RESIDUARY EXPENSES DEDUCTIONS [SECTION 37]

➢ Expenditure not covered u/s 30 to 36.
➢ Not a capital expenditure.
➢ Incurred during PY.
➢ Incurred after set-up of business.
➢ Legal purpose only.
➢ Not the nature of personal expenses.
Contribution to political parties in not allowed as deduction.
DEPRECIATION [SECTION 32]

Conditions to be satisfied for allowance of depreciation:
1. Asset should actually use by assessee for the purpose of business
during PY.
Even asset used for single day, full depreciation charged except for 1st year of
use of asset.
However, if it is used for less than 180 days in First Year, then only 50% of
depreciation is allowable to claim as deduction.
2. The Assessee must own the assets, wholly or partly.
Amount of depreciation = Depreciation can be claimed as % of WDV of
Block of Assets on basis of WDV method.
If no rate for P & M given = 15%
If no rate for books, computer given = 40%
If no rate for furniture given = 10%
44
ACTUAL COST [SECTION 43(1)]:

It means actual cost of asset to an assessee.
Asset used for business after it ceases to be used for scientific
research. = AC means Actual cost – Deductions u/s 35
Inventory converted into capital asset and used for the purpose of
business or profession = AC means FMV of such inventory on the date of
conversion into capital asset.
ADDITIONAL DEPRECIATION [SECTION 32(1)(iia)]

1. Eligibility = Manufacturing or production of any article or thing. &
Generation, transmission or distribution of power.
ALLOWED ONLY ON NEW PLANT & MACHINERY (Other than ships
and aircraft) BY INDUSTRIAL UNDERTAKING.
Rate = 20% (if less than 180 days put to use in 1st year then 10%)
EXPENDITURE ON SCIENTIFIC RESEARCH [SECTION 35]

If paid by assessee whether revenue and capital expenditure = 100%
allowed as deduction. (except land)
If assessee paid to any notified universities, college, IIT, approved
laboratory, center, research institution then also allowed 100%
deduction
INVESTMENT LINKED TAX INCENTIVES FOR

SPECIFIED BUSINESS [SECTION 35AD]
PP – IS – WCH
P Production of fertilizers in India.
P Production of honey, bee-keeping and beeswax.
I ➢ New Infrastructural project, operating and maintaining
also.
45
➢ Inland container depots set-ups and operating.

S Semi-conductor water manufacturing facilities – set-up and
operating.
W Warehouse for agriculture product and sugar.
C Cold chain facilities.
H ➢ Hospitals with at least 100 beds for patients.
➢ Hotels with at least two stars and more anywhere in India.
➢ Housing projects under affordable housing schemes.
➢ Housing projects under notified housing schemes for slum
re-development and rehabilitation framed under CG and
SG.
KEY POINTS:
1. 100% of capital expenditure is deducted from the business
income to assessee opting section 35AD.
INADMISSIBLE DEDUCTIONS [SECTION 40]

In case of assessee, following expenses are not-deductible
A. Section 40(a) (i) –
Any interest, royalty, fees for technical services or other sum
chargeable under this act, which is payable:
1. Outside India.
2. In India to NR or to foreign company.
Conditions for disallowance are:
a. TDS not deducted before end of PY.
b. TDS done but not paid before filing of return u/s 139.
100% of amount is disallowed under this section.
B. Section 40a(ia)
30% of any sum payable to a resident, on which Tax deducted shall be
disallowed if;
46
a. TDS not deducted before end of PY.

b. TDS done but not paid before filing of return u/s 139.
C. Section 40(a)(ii)
Any sum paid on account of any rate or tax levied on profits on basis of or in
proportion to profits and gains of B & P.
D. Section 40(i)(iib)
➢ Any sum paid by way of royalty, license fees, service fees, privilege fees,
service charges etc. or
➢ Any amount appropriated directly or indirectly from a state
government undertaking by the SG.
E. Section 40(i) (iii)

Any sum which is chargeable under head salaries if it paid outside India or to
a non-resident and if tax has not been paid or deducted.
F. Section 40 (i) (iv)

Any contribution to PF or fund established for the benefit of employees of
the assessee unless assessee made effective arrangements to make sure that
TDS is done.
G. Section 40(i) (v)

Tax paid on perquisites on behalf of employees is not deductible.
47
If any cash payment exceeds by a person to any person in a particular

day exceeds 10,000 then it also disallowed. (Sec 40 A (3)
If any payment to any relative of individual is unreasonable to some
extent also disallowed as per section 40 A (2)
CERTAIN DEDUCTIONS MADE ONLY ON ACTUAL

PAYMENT [SECTION 43B]
Tax, duty, Cess or fee Employer contribution to

PF/SF/GF.
Bonus or commission to Interest from any loan from FI,

employee SFC, SIIC.
Interest on any loan or advance Employer in lieu of earned leaves

from a scheduled bank or co- of his employees.
operative bank
Any sum payable to Indian

railways for use of railway assets.
COMPULSORY AUDIT OF BOOKS OF ACCOUNTS

[SECTION 44AB]
PERSONS WHEN TAX AUDIT IS

REQUIRED?
IN CASE OF PERSON CARRYING If his total sales, turnover or gross

A BUSINESS: receipts in business > Rs. 1 Crore in
the relevant PY.
48
Note: The requirement is not

applying to a person who
declares Profit and gains on
presumptive basis u/s 44AD and
his turnover/ sales or gross
receipts not exceed Rs. 2 Crores.
Aggregate cash receipts or If his total sales, turnover or gross

payments in the relevant PY receipts in business > Rs. 10 Crore
equal to or less than 5% of total in relevant previous year.
receipts or payments.
In case of assessee covered u/s If such assessee claims that P & G

44AE i.e., engaged in business of from business in the relevant PY are
plying, hiring or leasing goods lower than profits computed u/s
carriages who owns not more 44AE i.e.,
than 10 goods carriages at any
time during PY. For heavy vehicle goods:
Rs. 1000 per ton of gross vehicle
weight.
For other vehicles:

Rs. 7500 p.m. [No weight]
Total turnover/ sales or gross If he declares profits for any of the

receipts = or < Rs. 200 lakhs and five successive PYs not in
who has opted for section 44AD accordance with section 44AD, then
in any earlier PY. he cannot opt for section 44AD for
five successive PYs after the year of
such default.
For the year of default or five

successive years, he has to maintain
books of accounts u/s 44AA and get
them audited u/s 44AB, if his
49
income exceeds basic exemption

limits.
IN CASE OF PERSON CARRYING If his gross receipts > Rs. 50 lakhs in

PROFESSION: relevant PY.
In case of assessee carrying on a If such assessee claims that P & G

notified profession under section from business in the relevant PY are
44(1), whose gross receipts = or < lower than profits computed u/s
Rs. 50 lakhs 44ADA i.e., 50% of gross receipts.
50
CAPITAL GAINS
❖ Section 45(1) Any profit or gains arising from transfer of capital asset
effected in PY shall be chargeable to income tax under this head in the
PY in which transfer took place.
SHORT TERM AND LONG-TERM CAPITAL GAINS

[SECTION 2(42A) and 2(29A)]
1. Short-term Capital asset (Gains) means a capital asset held by an
assessee for not more than 36 months immediately preceding the
date of transfer. (Section 2(42A))
2. Long-term Capital asset/Gains means a capital asset held by an
assessee for more than 36 months immediately preceding the date
of transfer. (Section 2(42A))
Note 3: Exceptions in LTCG:
24months for LTCG
➢ Unlisted shares
➢ Land & Building
51
➢ Listed securities 12 months for LTCG

➢ Units of UTI
➢ Zero coupon bonds
I. WHAT IS TRANSFER OF CAPITAL ASSETS?

[SECTION 2(47)]
Sale and exchange of asset Conversion of CA into stock in trade
Maturity of Zero-coupon bonds. Extinguishment of any rights of
assets
Compulsory acquisition by govt. Part performance of contract.
II. NOT A TRANSFER OF CAPITAL ASSET?

[SECTION (47)]
i) Any distribution of capital asset under total and partial partition of
HUF.
ii) CA given as gift, under a will or trust.
iii) However, ii) clause not included employee stock option.
iv) Transfer of CA by holding company to its wholly owned Indian
subsidiary company
v) Transfer of CA by subsidiary company to its 100% holding company,
being an Indian company.
vi) Transfer of CA by amalgamating company to its amalgamated

company in case of amalgamation.
vii) Transfer of shares by shareholder in case of demerger or
amalgamation.
viii) Redemption of Gold bonds by individuals.
ix) Transfer of specified capital asset to Government or universities etc.
52
x) Transfer on conversion of bonds or debentures into shares or

debentures.
xi) Conversion of preference shares into equity shares.
xii) Transfer of CA into reserve mortgage.
Illustration 1:
Answer: 1) No 2) No 3) No
Hint [See section 47(ii), (i), (x)]
HOW TO CALCULATE CAPITAL ASSETS?

[SECTION (48)]
Full value of consideration received (transfer) XXX
Less: Expense on sale (Brokerage etc.) (xx)
(Deduction on account STT paid will not
allowed)
NET SALE CONSIDERATION XXX
Less: COA – Cost of Acquisition/ICOA
(Indexed if CA is LTCA) [See – Note 5 Below] (xx)
Less: COI – Cost of improvement/ICOI
(Indexed if CA is LTCA) [See- Note 5 Below] (xx)
STCG/ LTCG XXX
Less: Exemption u/s 54B and 54D in case of STCG.
Less: Exemption u/s 54/54B/54D/54EC/54F (xx)
STCG/ LTCG Chargeable to tax XXX
53
Note 5:
𝑪𝑶𝑨
COA = ∗
𝑪𝑰𝑰 𝒐𝒇 𝒚𝒆𝒂𝒓 𝒘𝒉𝒊𝒄𝒉 𝒂𝒔𝒔𝒆𝒕 𝒘𝒂𝒔 𝒇𝒊𝒓𝒔𝒕 𝒉𝒆𝒍𝒅 𝒃𝒚 𝒂𝒔𝒔𝒆𝒔𝒔𝒆𝒆
𝑪𝑰𝑰 𝒐𝒇 𝒚𝒆𝒂𝒓 𝒐𝒇 𝒕𝒓𝒂𝒏𝒔𝒇𝒆𝒓
𝑪𝑶𝑰
COI = ∗ 𝑪𝑰𝑰 𝒐𝒇 𝒚𝒆𝒂𝒓 𝒐𝒇 𝒕𝒓𝒂𝒏𝒔𝒇𝒆𝒓
𝑪𝑰𝑰 𝒐𝒇 𝒚𝒆𝒂𝒓 𝒊𝒏 𝒘𝒉𝒊𝒄𝒉 𝒊𝒎𝒑𝒓𝒐𝒗𝒆𝒎𝒆𝒏𝒕 𝒕𝒐𝒐𝒌 𝒑𝒍𝒂𝒄𝒆
COMPUTATION OF CAPITAL GAINS IN CASE OF DEPRECIABLE

ASSETS [SECTION (50) & (50)A]
Section 50C: FVC in case of transfer of L & B held as Capital
asset:
1. If Stamp Duty Value (SDV) > 110% of consideration received (ASC),
Then FVC = SDV
▪ If the date of agreement is different from the date of transfer and
whole or part of consideration is received by way of account payee
cheque, ECS, or through such other prescribed electronic modes, on or
before the date of agreement
Then, FVC = SDV on date of agreement. (Otherwise, vice-versa if not
paid by electronic modes).
2. However, if the SDV on the date of agreement or transfer, as the case

may be < = 110%
Then, ASC (Actual consideration received)
Section 50D: - If consideration is not determined, then, FVC = FMV of
said capital asset on the date of transfer.
ADVANCE MONEY FORFEITED [SECTION (51)]

Forfeited before 1.4.2014 Reduce from original COA.
Forfeited on or after 1.4.2014 Taxable u/s IFOS 56(2) (ix)
54
TAX ON SHORT TERM CAPITAL GAINS ON SALE

OF EQUITY SHARES AND UNITS OF EQUITY
ORIENTED FUNDS ON WHICH STT IS
CHARGEABLE: [111A]
✓ Any short-term capital gains on transfer of equity shares or units of an
equity-oriented funds shall be liable to tax @15%, if STT has been
paid on such transactions.
✓ In case of resident- Individual and HUF, the short-term capital gains
shall be reduced by unexhausted basic exemptions limits and the
balance will be taxed @15%.
✓ No deductions under chapter IV-A can be claimed in respect of
such short-term capital gains.
Short-term capital gains arising through transactions undertaken in
foreign currency on a RSE located in an International Financial service
would be taxable at the concessional rate @15% even STT not paid.
LONG TERM CAPITAL GAINS: [112]

✓ Any Long-term capital gains, other than capital gains under sections
112A, shall be liable to tax @20%
LONG TERM CAPITAL GAINS ON CERTAIN

ASSETS: [112A]
1. Any long-term capital gains exceeding Rs. 100000 on transfer of
equity shares or units of an equity-oriented funds shall be liable
to tax @10%, if the STT has been paid on acquisition and such sale
in case of equity share/units of mutual funds or business trust.
55
Exemptions u/s 54 is listed at the last of the pdf.
56
INCOME FROM OTHER SOURCES

INCOME CHARGEABLE UNDER THIS HEAD
[SECTION 56]
Section 56(2)(i): Dividend Income:
Dividend income is always taxable under head “Income from other sources”.
Section 56(2) (ib): Casual Income:
a. Includes:
1. Winning of lotteries.
2. Crossword puzzles.
3. Races like horse race
4. Card games.
5. Other games of any sort
6. Gambling, betting etc.
b. No deduction allowed for any expense from such income.
c. Taxable @ 30% under section 115BB.
Section 56(2)(viib): Consideration received in excess of FMV of shares

issued by a closely held company to be treated as income of such
company, where shares are issues at premium. :
FMV shall be the higher of----
a. Determined in accordance with prescribed manner.
b. Substantiated by the company to the satisfaction of the AO, based on
the value of assets on the date of issue of shares.
Section 56(2)(viii): Interest received on compensation/enhanced
compensation deemed to be become the income in year of receipt and
taxable under “IFOS”:
57
Section 56(2)(ix): Advance forfeited due to failure of negotiations for

transfer of a capital asset to be taxable as “IFOS’:
Advance received on or after 1.04.2014 ----- Taxable u/h capital gains.
Advance received before 1.04.2014------- Taxable u/h “IFOS”
Section 56(2)(x): Any sum of money or value of property received

without consideration or for inadequate consideration to be subject to
tax in hands of recipient:
PARTICULARS TAXABILITY
ALL TRANSACTIONS Exceeds Rs. 50K.

Without consideration:
IMMOVABLE PROPERTY
[BOTH LAND & BUILDING] i. Exceeds Rs. 50,000
Inadequate Consideration:
Stamp duty value – Consideration, if

such consideration is more than
higher of:
i. Rs. 50000
ii. 10% of consideration.
MOVABLE PROPERTY, other than Without consideration:

immovable
i. Exceeds Rs. 50,000
Inadequate Consideration:
Difference between
1. the aggregate FMV and
58
2. such consideration exceeds Rs.

50,000
EXCEPTIONS TO Section 56(2) (x)
Gift from relatives On occasion of marriage
Under a will In contemplation of death of
the payer
From any local authority
From any fund/university or From such classes of persons
other educational institution to such as may be prescribed.
or trust
Gift by any trust registered
Note 5: Definition of relative:
a. In case of individual:
i. Spouse of individual.
ii. Brother or sister of the individual.
iii. Brother or sister of the spouse of individual.
iv. Brother or sister of either of parents of individual.
v. Any lineal ascendent or descendent of the individual.
vi. Any lineal ascendent descendent of spouse of individual.
vii. Spouse of any of person referred in (i) to (vi) above.
b. In case of HUF:
i. Any member thereof.
Section 56(2) (id): Interest received on securities:

Securities held as investment Interest on such investment taxable
u/h “IFOS”
Securities held as SIT Interest on such investment taxable

u/h “PGBP”
59
Note 5: Exemption u/s 56(2) (id)

Interest on post office saving bank account exempted up to –
1. Rs. 3500 in case of individual.
2. Rs. 7000 in case of joint holders.
ii. DEDUCTIONS ALLOWABLE [SECTION 57]

(i) In case of income in nature of family section:
Lower of:
a. 33.33% of such income.
b. Rs. 15000
(ii) Any other expenditure not being in nature of capital expenditure.
(iii) 50% deduction in case of income from section 56(2) (viii)
60

 Mind Maps
 Examples
61
CLUBBING OF INCOME - provisions

INCOME OF OTHER PERSONS INCLUDIBLE IN
ASSESSEE’S TOTAL INCOME
1. Transfer of Income without transfer of Asset [Section 60]
✓ Such income to be included in the total income of the transferor.
✓ It is immaterial weather the transfer is revocable or irrevocable.
2. Income arising from revocable transfer of Asset [Section 61]
✓ Such income to be included in the hands of transferor.
INCOME OF OTHER PERSONS INCLUDIBLE IN

INDIVIDUAL’S TOTAL INCOME
Clubbing of Income arising to spouse:
➢ Income by way of remuneration from a concern in which the
individual has substantial interest [Section 64(1)(i)]
In case of company, substantial interest = 20% or more of voting
power.
In any other case, Substantial Interest = 20% or more of profit.
❖ It does not apply where remuneration is received by spouse on

account of his technical or professional qualifications.
➢ Income arising to spouse from an asset transferred without

adequate consideration [Section 64(1)(iv)]
(i) Transfer of Asset other than House Property:
Any income arising to the transferee spouse from
transferred asset, either directly or indirectly, shall be
included in the income of transferor spouse.
62
(ii) Transfer of House Property:

In this case, transferor shall be deemed to be the owner of
the HP and its annual value will be taxed in his hands.
Transfer of asset for the benefit of spouse [Section 64(1)(vii)]: Such

income to be included in the income of transferor to the extent that such
income is used by the transferee for the immediate benefit of transferor’s
spouse.
Clubbing of Income arising to Son’s wife:

➢ Income arising to son’s wife from an asset transferred without
adequate consideration by father-in-law or mother-in-law
[Section 64(1)(vi)]
Where assets transferred directly or indirectly by an individual to

his or her son’s wife are invested by transferee in the business,
then proportionate income arising from such investment is to be
included in the total income of transferor.
➢ Transfer of asset for the benefit of son’s wife [Section 64(1)(viii)]
Such income to be included in the income of transferor to the

extent that such income is used by the transferee for the
immediate benefit of transferor’s son’s wife.
Clubbing of Minor Income [section 64(1A)]:

❖ Clubbed in hands of Parents (whose total income is greater)
❖ Where the marriage of his parents does not subsist, then the income of
minor included in the income of parents, who maintains the minor
child in the relevant PY.
❖ If both parents’ dead, income assessed in the hands of grandparents.
❖ If any minor become major in the relevant PY, then till the date of
minority his/her income will be assessed according to section 64(1A)
❖ EXEMPTION: Rs. 1500 u/s 10(32) or Amount clubbed in his income,
whichever is less.
63
SET-OFF & CARRY FORWARD OF LOSSES
Set-off means adjustment of losses against the profits from another

head of income in the same assessment year.
If losses not set-off in same AY due to inadequacy of profits then such

losses C/F to next AY for adjustment against the eligible profits of that
year.
Sec 70: Under this section, the losses incurred by the assessee in respect
of one source shall be set-off against income from other source under
same head of income.
Exceptions: -
• Section 70 (3) – LTCL

✓ Short-term Capital loss is allowed to set-off against both short-
term and long-term capital gains but Long-term capital loss
can be set-off against long-term capital gains only and not
against short-term capital gains.
• Section 73 (1) – Speculation loss
✓ Loss in speculation business can be set-off only against the
profits from any other speculative business and not against
any other business income or professional income.
✓ Losses from other business ----- allowed to adjusted losses

with speculative business profits.
• Section 74A (3) – Loss from activity of owning and maintaining
race horses
✓ Loss in such business can be set-off only against the income
under same activities.
• Section 73A (1) – Loss from specified business
64
✓ Loss in specified business can be set-off only against the

profits from any other specified business u/s 35AD.
✓ Losses from other business ----- allowed to adjusted losses

with such business profits.
INTER – HEAD ADJUSTMENT [SECTION 71]:
SET-OFF LOSS HP with BUSINESS

INCOME/PROFITS
LOSS PROFIT
Loss from 1 HP can be set-off against income UNDER HEAD PGBP.
Under this section, the losses incurred by the assessee in respect of one
source shall be set-off against income under other head of income.
Loss under any head other than Set-off against income under any
capital gains other head of income (including
CG)
Loss under head PGBP Set-off against any other head of

income except “income under
head salaries”
Loss under head capital gains Cannot set-off against income from
any other head.
Loss under head HP Can be set-off from income under

any other head up to Rs. 2lakhs
maximum.
Loss u/s 73 (1), 73 A (1) and 74 A (3) Cannot set-off against any other
(mentioned above) head of income.
65
CARRY-FORWARD OF LOSSES:
Loss under head HP • Loss of 1 HP can be set-off against income
from other HP in same AY.
• If loss still unabsorbed, then set-off from

income under other head up to 2 Lakhs only
in same AY.
• If still loss unabsorbed, then it can be C/F to

next year for set-off.
• Once C/F it can be set-off only with same

head of income in forthcoming AYs.
Time period of set-off & C/F – 8 years
Loss under head PGBP • Loss under normal business can be set-off
in case of normal against income from other normal business
business in same AY.
• If loss still unabsorbed, then set-off from

income under other head EXCEPT
SALARIES
• If still loss unabsorbed, then it can be C/F to

next year for set-off.
• Once C/F it can be set-off only with same

head of income in forthcoming AYs.
Note 2: Person who incurred the loss, alone

entitled to carry forward & set-off the losses.
Loss under speculative • Cannot set-off against any other head of

business (Sec 73) income or as well as any other source of
income under same head of income.
66
• Loss under speculative business set-off only

with income under speculative business in
same PY.
• If loss unabsorbed in any PY then C/F to next

year to set-off loss with same source of
income.
Note 3: Losses under activity of trading in

derivatives is not considered as loss under
speculative business.

Loss under specified • Cannot set-off against any other head of
business u/s 35AD income.
• First set-off against the income from

specified business.
• If still loss unabsorbed then, C/F to next year

to set-off with income of specified business
only in next subsequent years.
Time-period of set-off & C/F – No-limit

Loss u/s head Capital • Cannot set-off against any other head of
Gains income.
• If loss so C/f is short-term capital loss, then
shall be set-off against any short-term or
long-term capital gains in that AY.
• If loss so C/f is long-term capital loss, then

shall be set-off only against long-term capital
gains arising in that AY.
Time-period of set-off & C/F – 8Year
67
DEDUCTION FROM GTI U/S 80 C TO 80U

Gross total income is the total amount of income earned by an
individual before making any deductions for taxes or other
expenses. It includes all sources of income such as salary,
business profits, rental income, capital gains, and any other
form of income.
 To calculate gross total income, you would add up all of your

income sources for a given period of time, such as a year.
 For example, if you earned a salary of Rs.50,000 per year and
had Rs. 10,000 in rental income, your gross total income
would be Rs. 50,000 + Rs. 10,000 = Rs. 60,000.
Section 80C:
❖ This section allows an individual/HUF to claim a deduction
on contributions made towards certain specified investments
and expenses.
❖ Some examples include:
• contributions to a provident fund,
• premiums paid for a life insurance policy (Bonus not
included i.e. exempt)
• tuition fees for children (full time education for max 2)
• Contribution to unit-linked insurance plans.
• Contribution to SPF/RPF/PPF/retirement funds
68
• Any sum paid/deposited to Sukanya samridhi A/c.

• Subscription to NSC VIII & notified units of NABARD.
• Investment in 5-year term deposits (max limit Rs. 1.5L)
Maximum deduction = 1.5 lakhs

Section 80CCC:
❖ This section allows an individual to claim a deduction for
contributions made towards a pension plan of a funds
❖ Maximum deduction = 1.5 lakhs
Section 80CCD:
contributions made towards the National Pension
System (NPS) set up by the central government or any
other approved fund.
❖ Maximum deduction:
❖ 80CCD (1) – up to 10% of salary.
❖ 80CCD (2) – If
→ CG employer then 14% of salary.
→ If other 10% of salary.
❖ Self-employed individual: - up to 20% of GTI.
Section 80CCE:
69
❖ This section puts a limit on the total amount of deductions

that an individual can claim under sections 80C, 80CCC, and
80CCD.
❖ Maximum deduction = 1.5 lakhs
Section 80D:
❖ This section allows an individual to claim a deduction on
premiums paid for health insurance for self, spouse, and
dependent children. (also, for parents as per clause ii)
❖ Contribution to health scheme notified by CG.
Self and family – 25,000
Senior citizen: - Rs. 50,000
Note: Health check up Rs. 5,000 allowed as deduction (but amt
includible in above amt as per clause i and ii.)
Mode of payment will be both cash or other mode for health
check-up but only other mode for other cases.
Section 80DD:
❖ This section allows an individual or HUF to claim a deduction
for expenses incurred towards the medical treatment of a
dependent disable.
❖ Dependent = spouse + children + parents + brother/sister
(not claimed deduction u/s 80U) in case of individual
and for HUF = dependent means a member
70
Disabled person – Rs. 75,000

Severe disabled person (80%): - Rs. 125,000
Section 80DDB:
expenses incurred towards medical treatment of specified
diseases.
Individual (below 60years) – 40,000
Senior citizen: - Rs. 100,000
Section 80E:
interest paid on a loan taken for higher education.
❖ Loan must be taken from Financial institution/approved
charitable institution.
❖ The deduction is allowed for a maximum period of 8 years or
until the interest is paid in full, whichever is earlier.
Section 80EE:
• This section allows an individual to claim a deduction for
interest paid on a home loan for the purchase of a first
house.
Value of loan sanctioned The assessee should not own

any residential house on the
<= 35 lakhs
date of sanction of loan.
71
Loan should be sanctioned Benefit is available till

during PY 2016-2017 repayment
Value of house <= 50 lakhs
Maximum deduction:
Rs. 50,000
Section 80EEB:
❖ This section allows an individual to claim a deduction
for interest payable in respect of loan taken for purchase
of electric vehicle.
Rs. 1.5 lakhs
Section 80G of the Income Tax Act,

❖ Donations made to certain specified charitable
institutions and funds are eligible for deductions.
72
❖ The amount of deduction depends on the nature of the

charitable institution or fund and the mode of payment.
Donation qualifying for 100% Approved funds like National

deductions without defence fund by CG, PM
qualifying limit. National relief’s fund,
National children fund,
Approved university, CM
Earthquake relief fund, Any
state govt. fund set up to
provide medical relief to
poor, national illness
assistance fund, Clean Ganga
fund by CG, PM Cares fund
etc.
Donation qualifying for 50% GANDHI FAMILY FUND: -

deduction without qualifying Jawaharlal Nehru Memorial
limits: fund, Rajiv Gandhi
foundation, Indra Gandhi
Memorial trust, PM’s
Drought Relief fund
Donation qualifying for 100% Govt. or any approved local

deduction subject to authority for promotion of
qualifying limit: family planning,
Sum paid by company as

donation to Indian Olympics
Association established in
73
India for development of

infrastructure for sports or
games.
Donation qualifying for 50% Any institution or fund

deduction subject to established in India for
qualifying limit: Charitable purpose.
Govt or any local authority

for utilization for charitable
purpose other than family
planning promoting.
For renovation or repair of

notified temple, mosque,
gurdwara, church or other
place of historic or place of
public worship etc.
Any corporation established

by CG or SG for promoting
the interests of minority
community.
74
Section 80GGA of the Income Tax Act,

Deduction in respect of donation for scientific
research and rural development:
Eligible: - Assessee not having income chargeable under “PGBP”
Section 80GGB of the Income Tax Act,
Deduction in respect of contribution given by
companies to political parties:
Sum contributed as donation by an Indian Co. to any political
party/electoral trust in PY in mode other than cash. [100% allowed]
Section 80GGC of the Income Tax Act,
Deduction in respect of contribution given by ANY
PERSON to political parties:
75
Eligible: - sum contributed as donation by any person to any

political party in PY in mode other than cash. [100% allowed]
No deduction to local authority or artificial judicial person.
Section 80QQB:
Deduction for royalty income of authors - This section allows
a resident author to claim a deduction on royalty income
received for their books. To be eligible for this deduction, the
author must be a resident of India and the book must be a
work of literary, artistic, or scientific nature. The maximum
amount that can be claimed as a deduction is Rs.
3,00,000.
Section 80RRB:
Deduction for income from patents - This section allows a
resident individual to claim a deduction on income received
from patents. The maximum amount that can be claimed as
a deduction is Rs. 3,00,000.
Section 80TTA:
Deduction for interest on savings account - This section allows

individuals and Hindu Undivided Families (HUFs) to claim a
deduction on interest earned on savings accounts up to a
maximum of Rs. 10,000.
Section 80TTB:
Deduction for interest on deposits for senior citizens - This

section allows senior citizens (age 60 years or above) to claim a
deduction on interest earned on deposits up to a maximum
of Rs. 50,000.
76
Section 80U:
• For a disability between 40% and 80%, the maximum

deduction is Rs. 75,000.
• For a disability above 80%, the maximum deduction is
Rs. 1,25,000.
77
How to calculate Total income?
78
Step 9: Application of the rates of tax on Total Income according to

slab rates.
Step 10: Surcharge/Rebate under section 87 A.
❖ Surcharge = TI > Rs. 50Lakhs
❖ Rebate = TI does not exceed Rs. 5,00,000.
(Rebate = whichever is lower)
▪ Total income tax payable or
▪ Amt of RS. 12500
Step 11: Health and educational Cess: It is an additional surcharge. @4%.
Step 12: Advance tax and TDS:
Although tax liability is determined only at end of year, tax is required to be
paid in advance in four installments on basis of estimated income i.e.,
➢ On or before 15th June
➢ On or before 15th September
➢ On or Before 15th December
➢ On or before 15th March.
However, residents opting for presumptive taxation scheme can pay advance
tax in one installment on or before 15th March instead of four
installments.
Step 13: Tax payable/ Tax refundable
79

 Mind Maps
 Examples
80
SACHIN EDUCATION HUB
EXEMPTIONS FROM CAPITAL GAINS

Particulars Section 54 Section 54B Section 54D Section 54EC Section 54F
Eligible Individual & Individual & Any Assessee Any Assessee Individual & HUF
Assessee HUF HUF
Asset transfer Residential Urban L & B forming a Land & LTCA, other than
House [LTCA] agriculture part of industrial Building or residential house.
land undertaking. Both (LTCA)
Other Income from Land used by L & B should Asset can also Transfer of plot of
Conditions such property assessee or have been used be a depreciate land is eligible for
chargeable HUF for by an assessee asset held for purpose of
u/h HP. agricultural for the purpose more than 24 exemption.
purpose for 2 of business of months.
years the industrial
immediately undertaking in
proceed after the 2 years
date of immediately
transfer. preceding the
date of transfer.
CG > Rs. 2 One NO LIMIT OF NO LIMIT OF NO LIMIT OF NO LIMIT OF

crores & Time residential AMOUNT AMOUNT: AMOUNT AMOUNT
limits for house situated
purchase in India & Land must be Qualifying Asset Qualifying Assessee should
used for should be L & B asset should be not own more
Purchased agricultural or right in land bonds of NHAI than one
within 1 year purpose and building. or RECL or any residential house
before or 2 whether rural other bonds on date of
years after the or urban. specified by CG transfer.
date of or RBI.
transfer.
Construct
within period
of 3 years after
the date of
transfer.
CG < Rs. 2 TWO NO LIMIT OF NO LIMIT OF NO LIMIT OF NO LIMIT OF

crores & Time residential AMOUNT AMOUNT AMOUNT AMOUNT
limits for houses
purchase situated in Purchase Purchase or Purchase Purchase one
India & another construct any within 6 residential house
agricultural building within months from situated in India
Purchased land within 2 3 years from the the date of within 1 year
within 1 year years from date of transfer. transfer. before or 2 years
before or 2 date of after the date of

years after the transfer. Assessee transfer.
date of should not
transfer. transfer or Construct one
convert such residential house
Construct bonds as situated in India,
within period security for the within 3 years
of 3 years after period of 5 from date of
the date of years from date transfer.
transfer. of acquisition
Amount of Cost of new Cost of new Cost of new Amount Cost of new asset
exemption residential agricultural asset OR invested in = or > NSC then,
house OR land OR specified bonds entire Capital
Capital Gains OR Capital gain exempt.
Capital Gains Gains
(long term) Capital Gains whichever is whichever is If Cost = or <
lower is fully lower is fully NSC, then only
whichever is whichever is exempt. exempt. proportionate
lower is fully lower is fully amt exempt:
exempt. exempt. Balance amount Maximum amt
taxable. in investment LTCG * Invt.
Balance Balance cannot exceed Amt / NSC
amount amount Rs. 50 Lakhs.
taxable. taxable.
RATES OF TDS APPLICABLE FOR FINANCIAL YEAR 2021-22 OR ASSESSMENT YEAR 2022-23
Rate of TDS applicable for the period or

Basic Cut off (Individual /Company and
Threshold Limit for others New Rate %)
Section Nature of Payment Summary
deduction tax If No Pan
Individual Company Other or Invalid
PAN (Rate)
As per Slab [Please note that no
Slab Option to choose between new and old tax slab
192 Salary Change in Slab Rates have been Slab Rates - 30
Rates regime for salaried employees
introduced for FY 2021-22]
TDS provisions u/s 192A will be applicable when
Premature withdrawal from
withdrawal of accumulated balance in Recognized
Employee Provident Fund
Providend Fund is to be included in the total income
(Payment of accumulated
192-A 10 NA NA 20
balance of provident fund which Rs 50000.00
10% in case of Resident and 10.40% in case of Non-
is taxable in the hands of an
Resident
employee)
Threshold limit for interest paid on debentures is
193 Interest on securities Rs 2500.00 10 10 - 20 Rs. 5,000. Threshold limit for interest on 7.75% GOI
Savings (Taxable) Bonds 2018 is Rs. 10,000.
This amendment proposes to amend second
proviso to section 194 of the Act to further provide
that the provisions of section 194 i.e. TDS on
dividend shall also not apply to dividend income
Dividend other than the dividend credited or paid to a business trust by a special
194 Rs. 5000.00 10 10 - 20
as referred to in Section 115-O purpose vehicle or payment of dividend to any
other person as may be notified.
This means that no TDS needs to be deducted to

AIF Category III also.
Interest other than interest on
 Senior Citizen Rs.
securities – Banks Time deposits,
194-A 50000.00 10 - - 20
Recurring deposit and Deposit in
 Others Rs. 40000.00
Co-op Banks
Income by way of winnings from  30% in case of Resident Indians and
lotteries, crossword puzzles, card Domestic Companies
194-B Rs. 10000.00 30 30 30
games and other games of any  31.2% in case of Non Resident and Foreign
sort Companies
 30% in case of Resident Indians and
Domestic Companies
Income by way of winnings from
194-BB Rs. 10000.00 30 30 30  31.2% in case of Non Resident and Foreign
horse races
Companies
 Single payment : Rs.

30,000
194-C Payment to Contractors 1 2 20
 Aggregate payment: Rs.
100000
TDS is to be deducted at the rate of 2.0% if the
payee is an AOP or BOI. TDS is not applicable on
 Single payment : Rs. payment to Contractor engaged in plying, hiring or
30,000 leasing of goods carriages, where such contractor
Contract – Transporter not
194-C  Aggregate payment: Rs. 1 2 20 owns 10 or less goods carriages during the
covered under 44AE
75000 Financial Year and furnishes amend definition of
“work” to include purchase of raw material from
associate of the customer. The word Associate shall
have the same relations as stated u/s 40A(2)(b).
 10%: If deductee is domestic Company
194-D Insurance commission Rs 15000.00 5 10 - 20
 5%: In any other case
Payment in respect of life
Section 194DA is not applicable in case of amount
insurance policy, the tax shall be
is exempt u/s 10(10D) i.e. the Sum is received at the
194-DA deducted on the amount of Rs. 100000 5 5 - 20
time of maturity of policy or Death benefit received.
income comprised in insurance
Form 15G/15H can be given wherever applicable.
pay-out
Payment to non-resident The rate of TDS shall be increased by applicable
194-E 20 20 - 20
sportsmen/ sports association surcharge and Health & Education cess.
 Resident Indians & Domestic Companies –
Payment in respect of deposit 10%
194-EE Rs 2500.00 10 10 - 20
under National Savings scheme  Non Resident – 10% + Cess + Surcharge (If
Applicable)
Payment on account of Resident Indians & Domestic Companies – 20%
194-EE repurchase of unit by Mutual 20 20 - 20 Non Resident – 20% + Cess + Surcharge (If
Fund or Unit Trust of India Applicable)
Threshold Limit of Rs.15,000 on Commission, etc.,
on sale of lottery tickets, the 5%, 5.20%, 5% and
Commission on sale of lottery
194-G Rs 15000.00 5 5 - 20 5.20% will be applicable on resident Indians, Non-
tickets
Resident Indians, Domestic Companies, and Foreign
Companies respectively.
The Threshold Limit is Rs.15,000 for the
194-H Commission or brokerage Rs 15000.00 5 5 - 20
Commission or brokerage 5% TDS will be applicable
on resident Indians and Domestic Companies
respectively.
RENT  The Threshold Limit of Rs.2,40,000 for
Rent on Plant & Machinery and Land
194-I(a) Plant & Machinery Rs. 240000.00 2 2 - 20 Building, Furniture and Fittings.
 The 2% TDS in case of Rent on Plant &
Machinery for resident Indians and
194-I
Domestic Companies respectively.
194-I(b) Land or building or
Rs. 240000.00 10 10 - 20  The 10% TDS in case of Rent on Land
furniture or fitting
Building, Furniture and Fittings for
resident Indians and Domestic Companies
respectively.
The Threshold Limit is Rs.50,00,000 for the
Transfer of certain immovable payment on transfer of certain immovable property
194-IA property other than agriculture Rs 50,00,000.00 1 1 - 20 other than agricultural land 1% applicable on
land resident Indians and Domestic Companies
respectively.
The Threshold Limit is Rs.50,000 per month for the
Payment of Rent by Individuals Payment of rent by an individual or HUF not liable
194-IB Rs. 50,000 per month 5 - - 20
or HUF not liable for Tax Audit to tax audit and 5% TDS is applicable on resident
Indians.
Payment of monetary
194-IC consideration under Joint - 10 10 - 20
Development Agreements
Fees for professional The Threshold Limit of Rs.30,000 on Any sum paid
or technical services. by way of:
Cases,
If recipient is  Wherein, the payee is engaged in the
engaged in business business of the operation of Call Centre
of operation of call only, 2% TDS is applicable on resident
Centre Rs 30000 2 2 - 20 Indians and Domestic Companies
respectively.
Fees for professional or technical If sum is payable  Fee for technical services, 2% TDS is
194-J
services: towards fees for applicable on resident Indians and
technical services Domestic Companies respectively.
(other than  Professional royalty where such royalty is
professional services) in the nature of consideration for sale,
distribution or exhibition of
cinematographic film 10% TDS is
In all other cases Rs 30000 10 10 - 20 applicable on resident Indians and
 In case of fees for any other professional
services 10% TDS is applicable on resident
Indians and Domestic Companies
respectively.
 In case the payee fails to furnish PAN 20%
TDS is applicable on resident Indians and
Units of Mutual Fund have been specified under
Payment of any income in
section 10(23D) of Income Tax Act, 1961.
respect of Units of Mutual fund
“Administrator”, “specified company” and
194-K as per section 10(23D) or Units - 10 10 - 20
“specified undertaking” are specified u/s 2 of the
of administrator or from a
Unit Trust of India (Transfer of Undertaking and
specified company
Repeal) Act, 2002.
No tax will be deducted if payment is made in
respect of any award or agreement which has been
TDS on compensation for
exempted from levy of income-tax u/s 96 of the
194-LA compulsory acquisition of Rs. 2,50,000.00 10 10 - 20
Right to Fair Compensation and Transparency in
immovable Property
Land Acquisition, Rehabilitation and Resettlement
Act, 2013.
Business trust shall deduct tax
Interest payment from a SPV and Distribution of
while distributing, any interest
dividend by a Business Trust, to Resident unit
received or receivable by it from
194- holders shall be liable for TDS @ 10%. Whereas, in
a SPV or any income received - 10 10 - 20
LBA(1) case of Non-Resident payee, TDS on dividend shall
from renting or leasing or letting
be @ 10% & that on interest payment shall be @
out any real estate asset owned
5%.
directly by it, to its unit holders
The TDS at the rate of 5.20% is applicable on Non-
resident Indians and foreign company in the case of
Distribution of, any interest
194- business trust shall deduct tax while distributing
received or receivable from SPV -
LBA(2) any interest income received or receivable by it
by Business trust
from a SPV to its unit holders
Distribution of, any income

The TDS at the rate of 31.20% and 41.60%is
received from renting or leasing
194- applicable on Non-resident Indians and foreign
or letting out any real estate -
LBA(3) company respectively.
asset owned directly by Business
trust
The TDS at the rate of 5.20% is applicable on Non-
Payment of interest on
resident Indians and foreign company in the case of
194-LB infrastructure debt fund to Non - 5 5 - 20
Payment of interest on infrastructure debt fund.
Resident
Investment fund paying an The TDS at the rate of 10%, 31.20%, 10%, and
194-LBB 10 10 - 30
income to a unit holder [other 41.60% will be applicable on resident Indians, Non-
than income which is exempt Resident Indians, Domestic Companies and foreign
under Section 10(23FBB)] companies respectively.
The TDS at the rate of 25% , 31.20%, 10%, and

Income in respect of investment
41.60% will be applicable on resident Indians, Non-
made in a securitization trust
194-LBC 25 10 - 30 Resident Indians, Domestic Companies and foreign
(specified in Explanation of
companies respectively.
section115TCA)
Payment of commission,
The threshold Limit of Rs.50,00,000 payment of
brokerage, contractual fee,
commission, brokerage, contractual fee,
professional fee to a resident
professional fee to a resident person by an
person by an Individual or a HUF
194-M Rs.50,00,000.00 5 5 - 20 Individual or a HUF who are not liable to deduct 5%
who are not liable to deduct TDS
TDS by the resident Indians and Domestic
under section 194C, 194H, or
Companies respectively.
194J.
2%: In general if cash

If a person defaults in
withdrawn exceeds Rs.
filing of return: 20 lakhs
1 crore
2%: If assessee has not
furnished return for
last 3 assessment
If no default is made in
years and cash
filing of return: Rs 1 crore
194-N Cash withdrawal 20
20 lakhs but does not
exceed Rs. 1 crore
5%: If assessee has not
furnished return for
last 3 assessment
years and cash
1 crore
The Threshold Limit is Rs.5,00,000 for the
Applicable for E-Commerce Applicable for E-Commerce operator for sale of
operator for sale of goods or goods or provision of service facilitated by it
provision of service facilitated by through its digital or electronic facility or platform.
194-O Rs.5,00,000.00 1 1 - 20
it through its digital or electronic The TDS at the rate of 1% will be applicable on
facility or platform. resident Indians and Domestic Companies
respectively.
Purchase of goods (applicable Budget Update

194-Q Rs 50,00,000.00 0.10 0.10 - -
w.e.f 01.07.2021) A new section 194Q is proposed to be inserted to
provide for deduction of TDS by person responsible
for paying any sum to any resident for purchase of
goods @ 0.1%.
The Threshold Limit is Rs.50,00,000 applicable
when total sales or gross receipts or turnover from
the business carried on exceeds Rs. 10 Crores
during the financial year immediately preceding the
financial year in which the purchase of goods is
carried out.
 The TDS at the rate of 20.80% is applicable
on income from investments made by a
NRI.
on income from long-term capital gains
under Section 115E for a NRI
on Income from long-term capital gains.
on Short-term capital gains under Section
111A
on any other income from long-term
Payment of any other sum to a capital gains
195 Non-resident
on Interest payable on money borrowed in
foreign currency
on Income from royalty payable by the
Government or an Indian concern.
on Income from royalty other than that
which is payable by the Government or an
Indian concern.
on Income from fees for technical services
payable by the Government or an Indian
concern.
on Any other source of income
Budget Update
Relaxation for senior citizen from filing ITR (Subject
to Tax Deduction under Section 194P) [AY 2021-22]
It is proposed to insert a new section 194P to the

Act, which proposes to provide relief to the senior
citizens of the age of 75 years or above from the
compliance of section 139 of the Act which provides
for filing of return of income.
A senior citizen of the age of 75 year or above is not

required to file the return of income, if the
following conditions are satisfied –
TDS on Senior Citizen above 75
194-P
Years
 The senior citizen is resident in India and
of the age of 75 or more during the
previous year;
 He has only pension income and may also
have interest income from the same bank
(specified bank – to be notified by the CG)
in which he is receiving his pension
income;
 He shall be required to furnish a
declaration to the specified bank. The
declaration shall be containing such
particulars, in such form and verified in
such manner, as may be prescribed.
The TDS on non-filers of ITR at higher rates This
section shall not apply where the tax is required to
be deducted under sections 192, 192A, 194B,
194BB, 194LBC or 194N of the Act. The Resident
TDS on non-filers of ITR Indian are liable to pay twice the rate specified in
206-AB
the relevant provision of the Act; or twice the rate
or rates in force; or the rate of 5%. It is noteworthy,
after considering cess at the rate of 4% and shall be
increased by applicable surcharge.

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SACHIN EDUCATION HUB – http://www.sachineducationhub.co.

INCOME TAX NOTES BY SACHIN

Taxes are levied by government to

It includes two types:

Basis Direct Tax Indirect Tax

Meaning If the tax is levied on the If the tax is levied on the

Tax Difficult Relatively easier.

For example Income Tax Goods and services tax

Scope of Income tax:

2. It is usually applicable to resident of a particular country or

3. Income tax may be levied at different rates for different types of

4. Income tax may be collected by federal government, state or

5. Income tax laws may include provisions for tax deductions,

6. Income tax may be enforced through self-assessment, where tax-

Nature of Income Tax

• Income tax typically imposed at progressive rates, which means that

• Many taxpayers have tax withheld from their paychecks by their

• Some taxpayers are required to self-assess their tax-liability and

Levy of Income Tax:

❖ Every person who is deemed to be an assessee under any provision of

(2) Assessment [SECTION 2(8)]

(3) Person [SECTION 2(31)]

→ Individual: It means only natural person, i.e. a human being,

→ HUF: It is not defined by Income-Tax Act. But according to

→ Company [sec 2(17)]: Under this Act, the expression “Company”

(iii) Any institute, association which is assessable or was assessed

→ Association of Persons (AOP): When persons combine

→ Body of individuals (BOI): It denotes the status of persons like

→ Local Authority: The term local authority is taxable in respect

→ Artificial Juridical Persons: These are not natural persons but

(3) Income [SECTION 2(24)]

Allowance Any capital FMV of

Any special P AND G of Compens. rec

Previous Year [PY] and Assessment Year [AY]

For example [2]:

- Determine the PY for AY 2021-22, if A Chartered Accountant sets

Answer: - The PY will be 1st July, 2020 to 31st March 2021.

GENERAL RULE: “Income of a PY is assessed in the AY following the PY”.

Section 174: Persons leaving India

(i) Computation of tax liability of Mr. Amit (age 63 years)

(i) Computation of tax liability of Mr. Amit (age 42 years)

From Rs. 2,50,001 to Rs. 5,00,000 5%

On the whole of the total income 30%

(3) Local authority

On the whole of the total income 30%

Residence and Scope of Total Income

• Residential status of individuals:

(i) He has been in India during the PY for total period of

(ii) He has been in India during the 4 years immediately

1. Indian citizen, who leaves India during relevant previous year as a

The above categories of individuals will be treated as resident in

a. the period of stay during relevant PY is 182 days or more

b. he has been in India, during the 4 years immediately preceding

Resident and Ordinarily Resident OR Resident but Not Ordinarily

[In short Who is NOR?]

(i) If such individual has been NR in India in any 9 out of 10 PY proceeding

• Residential status of HUF:

❖ Resident: If the control and management of its affairs is situated

(i) He should be the resident in at least 2 PY out of the last 10 PYs